Ok, ok. both you and crack are very very misinformed. Let me try to explain things here.

Thanks for the explanation. It's a nice recap of what the news has been saying. However, I didn't think it necessary to repeat what is available elsewhere online. The value in forums is so that people can toss opinions and ideas around and try them out. If people were to only state what they can positively prove and are fairly certain about, then they should be writing professionally and getting paid for it.

I suppose I failed to explicitly state that I am of the opinion that the problem is more deeply rooted than the current economic crisis, and I was explaining the details of that opinion. I did not intend to state it as factal information, which I thought I had expressed by explicitly using words such as "Personally", "I think it's possible ", "I believe". I even teased and said, "even if I might be right", which I had hope would imply that I'm not putting that a very high probability on me being right, although I admit the wording might've been too subtle. Furthermore, news articles are great, but journalists have only so much space, and they write creatively to appeal to the audience. There is a lot they don't have space or inclination to state.

So, to start over... I believe the government has very strong reasons for believing the bailout to be necessary. However, I think the current problems are only a symptom of more deeply rooted problems, stemming from too many government incentives and controls that were enacted but never revisited after such things have served their purpose. One such incentive is the mortgage interest deduction.

I believe its time has passed, even if there were ever a time it was useful to begin with. I do not believe that people still need more incentives to buy homes than they already do. We've discovered all the land there is. There is already a social trend towards a nuclear family when an extended family would be far more socially stable.

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Why do we give people a tax deduction on their home mortgage interest? That's simple. We do that to encourage people to buy and own a home, which builds wealth and increases fiscal security, so long as they do it in such a way as they can pay for their home and retain it.

If we were to believe the New York Times, the home mortgage interest deduction predates wide-spread use of home mortgages. One of the founding principles of our country was "no taxation without representation", and this is where it shows. When they first started taxing income, all interest was initially exempt. Over time, they started taxing more and more interest, but by then, homeowners were numerous enough to prevent home mortgages from being taxed as well.

(I had not seen that article before today, and I only skimmed it just now. I had independently come to the conclusion that mortgage interest rate deductions were problematic after the bailout was announced in the media.)

I think the New York Times article is plausible. If we really think about it, the homeowner incentives don't do anything for encouraging people to buy homes at all. Everybody already wants to do that anyways for many, many reasons, partly for the reasons stated above, and partly for emotional reasons such as "the American dream". The homeowner incentives only help the rich get richer: the biggest mortgages go to the ones with the most income. And, if we want people to get into homes, why do we now have a capital gains shelter, that encourages people to get out of their homes? Remember: the 1031 exchange for people who want to trade up already existed before that, so the capital gains shelter is for those who want to sell and take their money.

I just ran across this doing web searches: http://www.taxfoundation.org/blog/show/1081.html It says, "Despite the political popularity of the tax deduction for home mortgage interest, economists are basically united in their opposition to it. [...] by giving a tax subsidy to housing, it distorts investment decisions toward houses and away from assets like factories and equipment that are more productive at the margin. And that makes workers less productive, ultimately lowering wages and making society poorer."

So, I reiterate: the problems are far deeper than what the news articles have space to report, and I think the mortgage interest rate deduction is partly to blame. Furthermore, I'm not the only person to believe that, and the idea that the mortgage interest rate deduction encourages people to buy homes -- or that we want people to be encouraged to buy homes at all -- is yet another myth.

And cortana, thank you very much for taking the time to post. I appreciate the thought you put into your explanation. I was very discouraged to learn that I was typing at people who still believe that our pieces of paper are backed by gold, and I had limited my response to Pyron's post because of that. (I just wanted to make sure to disabuse others of the notion of any current gold standard.) I would not have bothered to explain further if it weren't for you. I hope my explanation was worth your presence here.

This is the STUPIDEST PILE OF CRAP I HAVE EVER HEARD.[...]Your idea sounds good on paper, but is realistically SO INCREDIBLY STUPID

Before anybody tries to claim, "Pyron only called the idea stupid", I'd like to point out that the definition of "stupid" is "characterized by or proceeding from mental dullness"[1]. Calling an idea stupid is the same as accusing the person who had the idea of mental dullness. I find what Pyron said to be far more insulting and aggressive than what cortana said. Even if he called me specifically "misinformed", the word only casts aspersions on my source and my belief on the source, not on my intelligence. I think the rebuke of cortana was very unfair compared to what the moderators here let Pyron get away with. I can understand not wanting to deal with a problem, but that doesn't explain this eagerness to pounce on other people who are causing far less of a problem.

You know, I fail to understand how we can so clearly grasp the necessity of this bailout when most reputable economists don't even know where we are headed. As much as they say, it seems on parallel with some of our friends on this forum, which is a brain dump of what they are marginally comprehending and padding the explanations with words to seem authoritative when in truth they are just as misguided as the neighbor next door that is paying a $2000/month mortgage with a 30k income. Whatever they say with things like taxes and the need to eat, they have little or no way to postulate the future in such novel times.

It's nice to be able to underscore what I just said by doing it myself!